Loughrey: Will Congress be tax grinch?

Is it going to be a Merry Christmas or will it be a Grinchy New Year? It all depends what happens in Washington, D.C., by year’s end. There are a couple of issues that can affect all of us.

If you will remember, back in 2010, the government made a change in the Social Security tax withholding rate. The amount deducted was originally 6.2 percent based on the first $106,800 of annual earnings. In December last year, this rate was lowered to 4.2 percent. Someone earning the full amount of wages would see a savings of $ 40 per week. However, the government determined that the average savings would be about $20 per week as not everyone would reach the maximum plateau. The debate continues as to whether this will be extended or fade away. It has been determined that the shortage in the Social Security Fund as a result of this tax change will amount to close to $100 billion.

Tax benefits to expire

Notwithstanding that issue, there are almost 67 tax deductions that will expire on Dec. 31. Many of these expenses do not apply to individuals and therefore are not being categorized. In the past, some of these tax deductions known as extenders got renewed by Congress at the last moment. But since some of them are very costly, they might be put off until after the 2012 election. Oh the games Congress plays! And this action is not limited to any particular party.

One of the most expensive deductions applies to someone who is self-employed or owns a small business and is in the market for a new vehicle. The IRS code will allow a 100 percent deduction for a luxury SUV provided it is used 100 percent for business and exceeds 6,000 pounds. This has to be purchased and put into service by Dec. 31. In addition to vehicles, equipment and furniture used in business will be allowed a bonus 100 percent depreciation up to the maximum of $500,000.

The $500 credit for making energy-efficient improvements such as the installation of a tankless water heater, completed by year-end is also scheduled to expire. Credits are better than deductions as they reduce the tax dollar for dollar.

Teachers who spend $250 for supplies used in the classroom must be able to meet the deadline or lose the deduction. These costs are for elementary and secondary school teachers only.

The deduction for state and local general sales taxes will disappear at year’s end, so if there are any large purchases to be made it must be within the stated time period.

Any senior over 70.5 may donate payments from their IRA to a qualified charity up to a maximum of $100,000 without this distribution being considered as part of the donee’s income. This provision will not be available after Dec. 31.

Another way to reduce an individual’s tax would be to donate a gift of appreciated property to a recognized charity. The Fair Market Value at the time of the gift will become the amount to be used as the deduction — not its original cost.

Observation: A bank is a place that will loan you money if you can prove you do not need it.